And remember those Wall Street abuses that led to the financial crisis?: The abusive risk-taking by Wall Street insiders content to exit companies and dubious transactions, fortunes in pocket, knowing that if risks materialized they, their cash in hand, would still be sitting pretty in contradistinction to those left holding the bag?
Remember how the Wall Street community coerced a rescue, paid for by the rest of us, that somehow wound up focusing far too much financial benefit on the same Wall Street players who put us in harm’s way? How the threat was that if such rescue was not forthcoming assets and liquidity of rest of the financial system would be catastrophically imperiled? Remember how when the rescue was implemented the benefits doled out didn’t flow through to the rest of the economy exactly as hoped (but unfortunately impossible to contractually provide for)? (An interesting 99-minute docudrama summing up the dilemma of those early structuring days as seen through the eyes of a fictionalized Secretary of the Treasury Hank Paulson and author and financial columnist Andrew Ross Sorkin is HBO’s “Too Big To Fail”.)
Remember the outrages when the rescued Wall Street operators insisted (despite the havoc they’d wreaked) on their continued entitlement to huge bonuses and excessive management fees?
Remember how, following the Street's resurrection from the meltdown, the Wall Streeters went on their merry way to continue in various stratagems for accumulating wealth without necessarily considering that the welfare of the rest of us still hadn’t yet recovered?
If you remember all this then you are going to find a new article appearing in Rolling Stone Magazine extremely resonant. It's about a “bailout” package Mitt Romney negotiated to financially rescue a failing Bain & Company by using some sharp legal tricks and lobbying of federal officials to force an FDIC write-down of $30 million Bain & Company debt to a recoupment by the FDIC of just $14 million, a substantial loss. The tale is fascinating in how it replicates in multiple miniature motifs the basic story of the larger 2008 financial crisis. You can savor its details here: The Federal Bailout That Saved Mitt Romney: Government documents prove the candidate's mythology is just that, by Tim Dickinson, August 29, 2012.
Before sending you on to this recommended read I thought I would preliminarily peruse the fact checking universe.- The Rolling Stone Magazine story, which reporter Tim Dickinson, based on documents obtained through the Freedom of Information Act, stands up well to fact checking.
One of the first things I found relating to it was on the Obama campaign web site: FACT CHECK: Bain & Co. Was Saved By A Bailout, August 30, 2012
The Obama campaign web site doesn’t fact check the Rolling Stone article. Instead it uses the Rolling Stone article to fact check the Romney claim/myth that Romney, currently a doctrinaire rejectionist of federal help or assistance, built the value of his Bain wealth on his own and without help. The Obama site uses the Rolling Stone article to call Romney out, viewing the federal agency’s write-down of Bain’s debt pursued by Mr. Romney was a form of federal help. In an important respect the Rolling Stone article reports (this is not mentioned on the Obama site), that the FDIC help may have been delivered by virtue of inherited familial political connections and what the article notes as “crony capitalism” maneuvering:
A month before he closed the 1991 loan agreement, Romney promoted a former FDIC bank examiner to become a senior executive at Bain. He also had pull at the top: FDIC chairman Bill Seidman, who had served as finance chair for Romney's father when he ran for president in 1968.(Romney’s getting “business” benefits from his father’s political coattails is reminiscent of George W. Bush’s garnering of fantastically huge profits from insider stock trading when the Securities and Exchange Commission was controlled by his father, then President George Bush.)
I suggest that you first read Mr. Dickinson’s Rolling Stone article for a coherent and contextual understanding of what happened, but below are the few faults that other fact checking stories find concerning Mr. Dickinson’s account of the facts (or the facts of the story as circulated by others prior to Mr. Dickinson's obtaining of the Freedom of Information Act FDIC documents):
• “Bailout,” by dictionary definition, means “rescue from financial distress” which is accurate but a better technical term could have been used. The Washington Post suggests it would be better to technically describe the multi-million relief from debt negotiated by Romney for Bain as “a loan restructuring.”
• Bain & Company (a financial “consulting firm”) is not Bain Capital (a private equity firm), the company for whom Romney directly worked. Indeed, that’s quite true: As Mr. Dickenson describes, Bain Capital was spun off by Bain and Company. It was in connection with the spinning off of Bain Capital as a separate company that Bain & Company generated the insupportable amount of debt that gave rise to the FDIC loss. Dickenson observes: “Had Bain & Company collapsed, insiders say, it would have dealt a grave setback to Bain Capital, where Romney went on to build a personal fortune valued at as much as $250 million.” Romney worked at Bain Capital to save Bain and Company for a $4 million fee that was paid to Bain Capital.
• The public did not pay for the FDIC’s write-down of the Bain debt with taxpayer dollars (therefore the FDIC’s reduction of Bain’s debt wasn’t truly a federal bailout). Dickenson’s article includes a clear acknowledgment about how the federal agency lobbied by Romney (the “Federal Deposit Insurance Corporation”) functions with respect to losses it incurs:
. . . while taxpayers did not finance the bailout, the debt forgiven by the government was booked as a loss to the FDIC – and then recouped through higher insurance premiums from banks. And banks, of course, are notorious for finding ways to pass their costs along to customers, usually in the form of higher fees. Thanks to the nature of the market, in other words, the bailout negotiated by Romney ultimately wound up being paid by the American people.
That leaves only the question of whether inclusion of “The Federal Bailout” in the title of his article is misleading. Indeed, Vice President Biden incorrectly cited the Rolling Stone article for the premise that taxpayer dollars paid for Bain’s “rescue from financial distress.” You will note that I have been more careful with the title of this National Notice article.(For “Fact Checking” articles from the Washington Post and New York Magazine see: Did Mitt Romney Get Bailed Out at Bain? By Kevin Roose, 8/30/12, Biden’s incorrect claim that a Bain ‘bailout’ cost American taxpayers, by Glenn Kessler, 09/04/2012, Did Mitt Romney get a ‘bailout’ for Bain & Company? by Glenn Kessler, 07/25/2012.)
• The principals at Bain reduced the amount of their originally planned extraction of money from Bain & Company. Notwithstanding that Bain principals apparently saw benefit in doing so the Washington Post seems to commiserate with those principals because at one point only half of the funds they had generated by creating the unsupportable Bain & Company debt, half of what they planned to remove, was taken out by them. The principals took half the money while the FDIC wrote down the unsupportable debt by half: Is that really the Post’s argument that the deal was a tenable one? Notwithstanding, reading Dickenson's account of events, which was written after the Post ventured its assessment of the deal’s arithmetic, the Bain principals ultimately did take out much more of what was originally planned, eventually extracting it in the form of bonuses engineered by overly clever legal documents that Mr. Romney, a lawyer, very likely had something to do with.
I think the mostly quibbling disputations above obscure the overall big picture which is how much Dickensen’s tale of this chapter of Romney’s exploits so amazingly echos what we ought to remember about all the things that propelled us into Wall Street’s 2008 crisis.
The Bain rescue occurred before the 2008 financial crisis, taking place in the early 90's. Bain, while benefitting from the deal with the FDIC to “rescue from financial distress,” remained in business. And Bain Capital, as we know, is in business to make money. Accusations have been leveled that when it serves its profit-motives Bain is never reluctant to put other business out of existence even when it means the destruction of jobs. The facts behind those accusations can be sorted out by others, not me, at this time, but however sordid the accusations are I am not sure that they are as bad as when Mr. Romney in his acceptance speech at the Republican Convention pathetically wanted to prove that the opposite was true, to prove that Bain Capital created jobs, and was able to do so presumably without government assistance. (This brings us back to fact checking.)
In his speech Mr. Romney said of Bain and himself using the “we” pronoun:
At a time when nobody thought we'd ever see a new steel mill built in America, we took a chance and built one in a corn field in Indiana. Today, Steel Dynamics is one of the largest steel producers in the United States.But as ABC News (and other press organizations reported) while Bain Capital:
. . . invested $18.2 million in the project, just as plans for the mill were being finalized in June 1994. That figure was more than doubled by state and county subsidies, adding up to more than $37 million.(See: Fact Check: Mitt Romney's Speech at RNC, by Gregory J. Krieg, Aug. 31, 2012.)
The Obama campaign’s fact check puts the total amount of government assistance Steel Dynamics received at a significantly greater amount: “Three Times More” than from Bain, “$60 million” and makes the point that the company’s growth and build-up of its work force “came years after Romney and Bain had anything to do with it.” (See: FACT CHECK: Steel Dynamics Got Three Times More Money From The Government Than Romney’s Firm, August 30, 2012.)
Notwithstanding Romney's bewildering failure in his convention night reach to say he knows how to create jobs, I think the real story is how much Romney's kind of Wall Street mentality is what got us into the job-destroying Great Recession in the first place. That's worth remembering even if the Republican campaign would prefer that the public doesn't. For an eye-opening that will also be a lot like a walk down memory lane, I suggest you read the Rolling Stone article . . . and it's one worth passing around.
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